FUND EXODUS

Money managers held a marginal net short position of 913 contracts on COMEX’s high-grade copper contract at the end of last week, according to the latest Commitments of Traders Report (COTR).

That compares with an equally marginal net long position of 960 contracts at the end of the prior week.

Both outright long and short positions have been slashed as the market has lost all directional momentum.

Money manager long positioning totalled 48,677 contracts last week.

It’s been a long unwind since the heady days of late 2016, when the copper price surged through $6,000 per tonne and funds built a record-breaking long position of almost 154,000 contracts.

Even as recently as early June 2018 they were still holding over 100,000 contracts of long positions.

By July, sentiment had flipped and the money men accumulated a short position of almost 87,000 contracts in double-quick time. That too was a record level, eclipsing the previous peak bearishness of early 2016, when copper was bottoming out after a five-year downtrend.

The big short has now also been unwound, with funds’ total short positioning reduced to just under 50,000 contracts last week.

It’s a similar picture on the London Metal Exchange (LME) copper contract.

Although there is no comparable history of COTR data, LME broker Marex Spectron estimates speculators have also been largely neutral since the start of December.

As of last week, speculative positioning amounted to a marginal short of 1 percent of open interest, equivalent to 2,300 lots, having swung between a long of 16 percent at the start of the year to a short of 30 percent in July.

The exodus of money men from the copper market is also plain to see in a general slide in activity.

Market open interest on the COMEX contract is currently 208,606 contracts, the lowest since the fourth quarter of 2016. Trading volumes slumped 15 percent in November.

In Shanghai, which has seen its own big copper short this year in the form of Gelin Dahua Futures, trading volumes have also collapsed since the third quarter.

Open interest at the end of November was 509,084 contracts, down 34 percent on year-earlier levels, and it has since fallen further to a current 466,500 contracts, the lowest level of participation since early 2017.

ALL TRUMP BETS ARE OFF?

Funds have played copper from the long and the short side since Donald Trump won the U.S. presidential election in 2016.

The “Trump Rally” of November 2016 was the trigger for a stampede into the market by speculators betting on a promised domestic infrastructure programme.

It helped that copper had spent much of the year forming a base after five years of sliding prices. Technicals aligned with fundamentals and, as investors built a mega long position, with the simple power of money.

Sometime around the middle of this year, all three drivers went into reverse.

In its place came a rising dollar, negative for dollar-denominated commodities, and a steady ratcheting-up of trade tensions with China.

Those hoping for a year of supply disruption from the large number of expiring labour contracts at some of the world’s biggest mines were disappointed as strike deadlines came and went without incident.

The price, meanwhile, ran out of upside momentum first in February with a high of $7,291 and again in June at $7,348.

Funds turned bearish with a vengeance in July as the market realised that Trump’s attacks on China, the world’s biggest copper user, were more than just twitter-talk.

The price slumped to the year’s low of $5,773 per tonne in August but despite testing that area repeatedly in September, the market held.

The bearish macro “Trade War Trade” ran aground on copper’s micro strength. Chinese imports have been robust, visible exchange stocks of copper have been falling and short position holders found themselves squeezed by tightening time-spreads, particularly on the LME.

NEW YEAR, NEW TRADE?

The net effect of bearish macro and bullish micro signals has been a stubbornly range-bound copper market.

In London the three-month metal price has since the start of October trundled sideways in a $6,000-6,400 range, last trading at $6,060.

Faced with copper’s refusal either to go down or up, money men have given up. Those with profits to book have taken the money and left. Those who have lost money have done the same to limit the damage.

Some of the braver bulls may have played the spreads, but here too any directional tension is rapidly unwinding as this week’s LME December prompt date passes.

The benchmark LME cash-to-three-months spread CMCU0-3 started the month in backwardation with a cash premium of $30 per tonne. That premium has vanished this week, the period closing Monday valued at a contango of $27.50.

Copper looks set to finish the year with a whimper.

The price is stuck, the spreads are quietening and the money men are largely gone.

That leaves the market a clean sheet for investors going into 2019.

However, with copper’s fundamental outlook beholden to a massively uncertain political outlook, they may choose to bide their time before recommitting one way or the other.

Ask “Dr Copper” what he makes of the world right now and the answer seems to be that he doesn’t really know.